Rethinking Section 12A after the 2026 IBC Amendment

[Tathya and Krishna are students at Institute of Law, Nirma University and Gujarat National Law University, Silvassa, respectively.]

There is a particular irony in Section 12A of the Insolvency and Bankruptcy Code 2016 (IBC), a provision which was enacted to protect parties from being trapped in a process which they no longer needed has become a mechanism through which the process was most routinely subverted and abused. The Insolvency and Bankruptcy Code (Amendment) Act 2026 (2026 Amendment) now substitutes Section 12A entirely, closing the pre-committee of creditors (CoC) withdrawal window and permanently barring withdrawal once the first invitation for resolution plans (Form G) is issued. This article argues that whilst such amendment is necessary and directionally correct, it fails to differentiate between abusive practices and bonafide settlements, thereby risking the very consequences it aims to prevent.

How Section 12A Became a Loophole

Before 2018, no statutory provision permitted withdrawal of a corporate insolvency resolution process (CIRP) application after its admission. Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 allowed withdrawal only pre-admission. Following Uttara Foods and Feeds (P) Limited v. Mona Pharmachem, where the Supreme Court invoked Article 142 of the Constitution to allow withdrawal and directed formal rules be made, the Insolvency Law Committee recommended a statutory route. Section 12A was inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act 2018 as a result.

The provision was sensible in design, it required 90% CoC voting share for withdrawal which was deliberately higher than the 66% threshold for approving resolution plans under Section 30(4) of the IBC. As the Supreme Court confirmed in Vallal RCK v. M/S Siva Industries and Holdings Limited (Vallal RCK), once that 90% threshold is met, neither the National Company Law Tribunal (NCLT) nor the National Company Law Appellate Tribunal (NCLAT) can sit in appeal over the CoC’s commercial wisdom. What the design underestimated was how flexible the admission stage could be.

The Insolvency and Bankruptcy Board of India’s data tells us that by 31 March 2026, 1,292 CIRPs (which is roughly 14% of all admitted cases) were withdrawn under Section 12A out of which 871 were initiated by operational creditors. The data further shows that approximately 51% of operational creditor initiated CIRPs closed via appeal, review, or withdrawal. Section 9 of the IBC was being invoked by creditors at the admission stage as a strategic tool to pressurize debtors into entering settlements. Filing under the IBC produced an immediate management suspension, a moratorium under Section 14 and a transformed negotiating environment, all of this happened before a single CoC meeting took place. The pre-CoC window made this process particularly dangerous. Before a CoC is constituted there is no particular body representing all of creditors. This allowed the creditor who filed for the CIRP and the debtor to reach a private settlement, which could undermine the collective interest of the creditors that the CIRP process was designed to protect.

GLAS Trust and the Doctrinal Foundation for the 2026 Amendment

If one case made the 2026 Amendment structurally necessary, it was GLAS Trust Company LLC v. Byju Raveendran & Others (GLAS Trust). After the NCLT Bengaluru admitted the Board of Control for Cricket in India’s (BCCI) Section 9 petition against Think and Learn Private Limited for INR 158 crore, the promoter settled with the BCCI and the parties invoked the NCLAT’s inherent jurisdiction under Rule 11 of the National Company Law Appellate Tribunal Rules 2016 bypassing Section 12A read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016  to set aside the admission order entirely. 

GLAS Trust Company LLC, a financial creditor with far larger exposures, successfully challenged this. The Supreme Court held that admission transforms CIRP proceedings from in personam to in rem as it engaged the rights of all creditors collectively and that Section 12A read with Regulation 30A constitutes the exclusive route for withdrawal. A catena of varied judgements from Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP to Swiss Ribbons Private Limited and Another v. Union of India and Others created a continuing sense of uncertainty about how far inherent powers could be used after admission. The GLAS Trust ruling finally put that uncertainty to rest. The court also indirectly recognised that the period before the CoC was formed was the main point where the process was vulnerable to abuse, an issue that the 2026 Amendment now directly seeks to resolve. The doctrinal shift established by GLAS Trust continued into 2026 with the Supreme Court in Sanjay Dave v. Andhra Bank Limited (Sanjay Dave case) as it affirmed that the binding character of the insolvency process that once it is set in motion it cannot be undone by the conduct of any single party be it creditor, debtor, or resolution applicant who are acting outside the statutory framework. 

What the Amendment Does and What it Does Not

The 2026 Amendment’s two most consequential changes are the closure of the pre-CoC withdrawal window and the permanent closure of the post-Form G window. The former ensures withdrawal is always a collective decision taken by all the creditor. The latter gives prospective resolution applicants (PRAs) who invest time and due diligence in responding to Form G, a statutory guarantee that their investment cannot be undone by a last-minute private settlement. The NCLAT had addressed this issue in Sandeep Gupta v. J.M. Financial Asset Reconstruction Co. Ltd. stating that PRAs have the right to have their resolution plans considered but no right to insist of its approval. The 2026 Amendment now takes this one step further: once PRAs are formally invited in the CIRP process, they cannot be shown the door by a creditor-debtor settlement. 

In the Sanjay Dave case, where the Supreme Court dismissed a successful resolution applicant’s (SRA) attempt to resile from a CoC-approved resolution plan by characterising the Letter of Intent as conditional. The court, relying on Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited reaffirmed that once a CoC approves a resolution plan, it becomes binding in nature and irrevocable as between the CoC and the SRA, and the SRA cannot modify or withdraw it. Applying the doctrine of  approbate and reprobate, the court held that the appellant had participated in CoC meetings with full knowledge of the relevant conditions could not later object to those very terms. The court also upheld the forfeiture of the earnest money deposit and the CoC's subsequent decision to liquidate the corporate debtor, observing that the SRA's deliberate delay in implementation defeated the time-bound objectives of the IBC. Sanjay Dave thus underscores why the post-Form G restriction in the 2026 Amendment is structurally necessary: if the statutory framework could not prevent an SRA already bound by CoC approval from attempting to renege, the vulnerability of a pre-Form G process where no such collective approval exists to a private creditor-debtor settlement was self-evident and demanded a legislative response.

The 90% CoC threshold is retained and is consistent with Vallal RCK.  However, the requirement of consent from the original applicant creditor is removed, further reinforcing the right in rem character of proceedings after admission. A mandatory 30-day NCLT timeline for deciding withdrawal applications is also added thus preventing pending applications from being used to freeze CIRP proceedings during prolonged negotiations.

What the amendment does not address is equally important. The CoC consists of financial creditors only as operational creditors have no right to vote. Yet operational creditors initiated 871 of the 1,292 pre-amendment Section 12A withdrawals. Under the amended framework, an operational creditor seeking withdrawal after the CoC has been constituted must obtain approval from a body in which it has no voting rights. This creates a structural contradiction that the 2026 Amendment does not resolve. Promoters disqualified under Section 29A are barred from submitting a resolution plan, and post 2026 amendment, they cannot workaround it by settling with the creditor and getting the CIRP withdrawn. Now, their only formal path to regain control is through Section 12A withdrawal approved by 90% of the CoC. This weakens the promoter’s leverage because by that stage the creditors have been collectively engaged, and they may prefer proceeding with the CIRP instead of a promoter-driven settlement side-stepping Section 29A. By narrowing this window furthermore and that too without creating an alternative mechanism, the amendment risks pushing some genuinely distressed companies into liquidation solely because the promoter’s only legally available option was cut off by timing constraints.

The Missing Reform: Pre-Filing Settlement 

The biggest problem which the 2026 Amendment left unresolved is that admission continues to function as a powerful coercive tool. No legislative amendment to the post-admission framework can fully neutralise this because coercive powers like the management suspension, moratorium, public insolvency notice are inherent to the IBC’s design. What the legislature could have addressed in the amendment but failed to do so was the introduction of pre-filing settlement or mediation window. India’s pre-packaged insolvency framework for MSMEs, introduced through the Insolvency and Bankruptcy Code (Amendment) Act 2021, already includes a pre-admission settlement stage. There seems to be no clear rationale provided to explain why a similar mechanism cannot be replicated for larger corporates, especially, in those cases which involve smaller defaults and where the primary goal is realistic recovery for operation creditors instead of a full-scale insolvency. What we suggest is that instead of merely shifting the settlement exit to the pre-admission stage by default, a formal pre-filing settlement window could be contemplated which would provide the parties with a structured opportunity to resolve disputes before the coercive machinery of the IBC is triggered altogether.

Conclusion

We must acknowledge that the 2026 Amendment is a correction that was much-needed, even if implemented through a blunt approach. The decision to close the pre-CoC withdrawal window addresses a gap in the insolvency framework which has been heavily exploited since the insertion of Section 12A. Moreover, at the same time, PRAs have received meaningful statutory protection for the first time via introduction of the post-Form G restriction.

However, this reform comes with costs. The 2026 Amendment restricts genuine pre-CoC settlements, leaves unresolved the exclusion of operational creditors from CoC voting on withdrawals and further exacerbates the asymmetry posed by Section 29A by narrowing the only practical route available to disqualified promoters who intend to regain bonafide control.

At last, most importantly, the amendment fails to introduce the one reform that could have addressed many of these concerns altogether: a structured pre-filing settlement mechanism. Such a mechanism could reduce the incentive to use admission strategically by encouraging resolution before the insolvency process formally begins.

Therefore, the settlement exit under the IBC has not been abolished, but rather it has simply been shifted to the stage before the process becomes collective. Whether this change genuinely alters stakeholder behaviour or merely moves the same tactical bargaining earlier in the timeline is a question the next decade of IBC jurisprudence will answer.